Square merchants' loyalty texts under investigation

The Keller Rohrback law firm revealed in a September 2017 blog post that it is investigating "telemarketing-loyalty texts from Square Inc." The firm has several practice areas, including consumer and data privacy protection, financial products and services, and class action and consumer litigation.

Keller Rohrback has determined that if retailers using Square send promotional text messages to customers who have not given them their cell phone numbers, this may be in violation of state and/or federal law. Such messages often welcome consumers to loyalty programs they did not join.

According to San Francisco-based law firm Perkins Coie LLP, several legal issues commonly arise for customer loyalty programs. These include the need to adhere to laws pertaining to unfair and deceptive trade practices, privacy and data security, and payment instruments and stored value, among other issues.

A way to differentiate

The electronics payments industry is increasingly competitive, with new and established companies vying for merchant accounts. ISOs and processors strive to distinguish themselves with a variety of services that go beyond basic payment processing. Common value-added services include gift and loyalty programs, merchant cash advance, data analytics, currency conversion and more.

"One benefit Square emphasizes is its ability to help client-retailers use customer information and data to drive repeat business with marketing features, such as Square’s 'loyalty' program," Keller Rohrback stated. "Square’s loyalty program allows client-retailers to send customers 'loyalty' texts whenever they spend a certain amount of money at the retailer, offering rewards to incentivize repeat business."

Keller Rohrback noted that Square processed $49 billion in gross payment volume in 2016 alone, and the company's loyalty program is a draw for merchants. The firm provided the following description of how the program works:

1. You make a purchase at a retailer who uses Square’s system, pay with your credit card, and request a receipt via text message, which Square sends you shortly thereafter.
2. Square stores your credit card information and phone number in its database.
3. You make another purchase at a different Square client-retailer, using the same credit card, without necessarily asking for a receipt.
4. If that client-retailer has turned on Square’s loyalty program, you automatically receive a text message telling you that you’ve earned X number of loyalty points in that retailer’s loyalty program.

Slipping outside the law

"What makes this practice possibly a violation of the law is that when you ask for a receipt at step 1, you are not consenting to receive telemarketing or advertising ‒ which is what loyalty texts are ‒ from a different retailer and/or Square at step 4," Keller Rohrback stated. "Each and every text you receive from one of Square’s client-retailers for their loyalty programs is a violation of federal law, each instance of which carries a $500 or $1500 fine depending on how much Square really knows about its practices."

Payments attorney Adam Atlas agreed retailers need to pay close attention to what consumer data they collecting and how they use it in our age of advanced technology. "Payments providers have considerable ability to collect consumer information, with or without the knowledge or consent of the merchant or the payments provider reseller ‒ that is, the ISO," he said. "All parties should remember that consumer consent is required to collect, store and use their data for one reason or another. Any platform that is built on marketing by Merchant B, using data collected from Merchant A, is necessarily open to challenge if Merchant A did not collect the necessary consents at the point of collection of the data."

For more information about Keller Rohrback's investigation, call 800-776-6044 or email consumer@kellerrohrback.com.

Editorial Note:

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